Question

You have just opened a new savings account o§ering a 1.5% interest rate which is compounded annually. (a) If you deposit $500 today and another $650 one year from today, how much money will you have in the account after two years? (b) Suppose that a competing bank o§ers a 1.4% rate that is compounded monthly. If you decide to deposit your funds in this bank instead, how much money will you have in two years?

Answer 1

Intructions are listed below

Step-by-step explanation:

Giving the following information:

You have just opened a new savings account offering a 1.5% interest rate which is compounded annually

A) Year 1= $500 n=2

Year 2= $650 n=1

We need to use the following formula:

FV= PV*(1+i)^n

PV= present value

i= interest rate

n= number of years

FV= 500*(1.015^2) + 650*(1.015^1)= $1174.86

B) i= 0.014 (annual) i=0.014/12= 0.0012 (monthly)

Year 1= 500 n=24

Year 2= 650 n=12

FV= 500*(1.0012^24) + 650*(1.0012^12)= $1174.22